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Saturday, March 28, 2009

UN Panel Welcomes Debate Over New Global Reserve Currency

26 March 2009 - Wall Street Journal

For those keeping score… This makes it 3. Russia, China and now the UN have each announced advocating a move to a global currency at the upcoming G20 conference.

The head of a United Nations expert panel discussing solutions to the financial crisis on Thursday welcomed the debate over a new global reserve currency and said it would be best managed by a brand new institution.

Just days ahead of the Group of 20 heads of state meeting in London, several key players have weighed in with solutions to resolve the current financial crisis and to prevent future recurrences. One of the most sensitive subjects is the creation of a new de facto global reserve currency to replace the U.S. dollar.

The debate has shot to the forefront as officials from Russia and China have spoken up, lending weight to the discussions. While the G20 meeting isn’t expected to address it directly, it’s a topic that will continue to be discussed over the longer term.

The U.N. panel’s report published last week said a new global reserve system would “contribute to economic stability and equity,” and would reduce the deflationary effects of the massive reserve accumulations that countries have found necessary to protect them against the high level of global instability.

The International Monetary Fund is often cited as the most obvious choice to run a global reserve system, as it already uses its own currency, known as special drawing rights, or SDRs, in its dealings with member countries.

Joseph Stiglitz, economist and head of the U.N. panel, said Thursday in a teleconference with journalists that, although the IMF might be the fastest route, there’s a stigma associated with it among some developing countries, and there’s also frustration with the way that SDRs are allocated.

“My own longer-term preference is to create a new institution to do this,” Stiglitz said. “That’s a trade-off. I would rather face up to these deeper questions and get the system right.”